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Australia and New Zealand – Investment-wise Birds Of A Feather

Antipodean Neighbours Singing Off Same Song-sheet, Nuclear-free Zone Notwithstanding

by Xavier Basil

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Yeah, Gidday Mate

One of the tribulations of being a New Zealander abroad is to be routinely mistaken for an Australian. We know who we are but we’re constantly reminded that most other people in the world don’t. They certainly can’t tell our accents apart and have only the haziest impression of other distinctions between Australia and New Zealand. When I recently asked a group of English-learners to state a fact about New Zealand, one proffered that it was where koalas come from. Not true of course, that would be the big country on our left.

So, in the spirit of making a virtue of necessity, we take a look at the relationship early in the 21st Century between Australia and New Zealand, with a particular tilt towards investment in a key sector in each country. Is it six of one and half a dozen of the other, or are there factors which operate to pull foreign investment in one or the other direction?

‘Lucky Country’ Also Big

Let’s start with some basics. Australia is huge – a continent even ¬ with its land mass of nearly 7.7 million square kilometres making it 28 times larger than New Zealand. With a population of around 22 million, Australia has roughly five times New Zealand’s 4.4 million. Both countries are former British colonies so both have a large portion of their populations with British or Irish ancestry and of course English is very much the primary language.

Officially titled the Commonwealth of Australia, the country is a federation of six states and two ‘territories’ – each with their own parliaments and judiciaries and asserting sovereignty over all matters of government not reserved to the federal government under the written constitution of 1901. New Zealand, by contrast, is a single state, with just the one parliament and no written constitution. The then colony declined the invitation to join the Commonwealth of Australia on its formation, though the invitation remains in place over a century later, enshrined in the latter’s constitution.

The two countries are invariably seen – and they see themselves – as neighbours but in geographical terms that’s hardly the case. Some 1,500 kilometres of ocean divide them and it takes as long to fly from Auckland to Sydney – two and a half to three hours, depending on which way the wind’s blowing – as it does from one side of Europe to the other. But since, Pacific island nations excepted, there’s otherwise nothing ‘down under’ except water, the physical separation of Australia and New Zealand counts for little in terms of their relationship.

The ANZAC Spirit – Except For Nuclear

Which, in a nutshell, is close. As close as might be imagined between two sovereign states. Forged in their common origins and hardened in a shared experience of war, specifically the ANZAC (Australia/New Zealand Army Corps) contribution to the Gallipoli Campaign of 1915, Britain’s ill-fated strategy to break the deadlock on the Western Front in World War One. On most international issues, Australia and New Zealand tend to speak with one voice.

Indeed, the only real disagreement in a century of common ground has been as regards New Zealand’s decision to go ‘nuclear-free’ in the mid-1980s, given tangible expression by legislation which banned visits by nuclear-armed or powered warships, curtailed R&R visits by American (and British) vessels and led to New Zealand’s effective exclusion from the ANZUS military pact between it, Australia and the US. As the world’s third-largest producer of uranium, some consumed in nuclear weapons production, Australia was never going to go down the nuclear-free route and has developed its own bilateral defence relationship with the United States.

Apple War Ends

But the prospective investor in either – or both – Australia and New Zealand would get little hint of discord between the respective governments today. Even the hoary apple dispute has been resolved, with Australia’s acceptance of the World Trade Organisation’s 2011 ruling that its 90-year-old ban on New Zealand apples because of fire blight risk could no longer be justified scientifically and was therefore in breach of WTO rules. Aussie growers are still grumbling but that thorn in the side of the relationship has at last been extracted.

Close, Closer …

It’s likely that the prospective investor would conclude, following a ‘due diligence’ on each country, that in many important respects they function as if one market. The conclusion would be justified and has its foundations in ‘CER’, the convenient shorthand of the acronym ‘ANZCERTA’ – the Australia-New Zealand Closer Economic Relations Trade Agreement. The 28th of this month (March 2013) marks the 30th anniversary of the signing of this pact, the intent of which was to create a single market for goods and services originating in one or the other country. Whilst there is no formal customs union, all trade between the two countries is free of duties and quantitative import restrictions.

The CER agreement has provided a framework for a raft of other measures aimed at harmonising trans-Tasman trade, with the point being reached where Australia’s Department of Foreign Affairs & Trade is able to say on its website that –

With most of the trade goals now met … Australian and New Zealand Governments now are taking a strategic approach to shaping and guiding a Single Economic Market (SEM) to enable business, consumers and investors to conduct operations across the Tasman in a seamless regulatory environment.

New Zealand Dependence on Oz Market

Given the disparity between the two countries’ populations, it might be thought that this move from ‘harmonisation’ to ‘single market’ is of much greater benefit to New Zealand than to Australia. Certainly, Australia is a key market for New Zealand exports, taking nearly 24 percent by value, some $11 billion, in the 12 months to September 2012 and making Australia far and away New Zealand’s largest trading partner. The next-largest customer – China – was well back at just shy of $6 billion, with a large drop to the United States at $4 billion.

But it’s by no means one-way traffic, with Australian exports in goods and services eastbound across the Tasman Sea to New Zealand more or less equalling the westward flow. The difference is that this amounts to just 2.9 percent of Australia’s total merchandise exports and 7.1 percent of services, primarily represented by inbound travel from New Zealand. Total two-way trans-Tasman trade in 2011 approached $22 billion, putting New Zealand seventh amongst Australia’s top-10 trading partners, albeit dwarfed by the $121 billion worth of mutual trade with the PR of China.

Other Ties That Bind Us

Beyond the formal impact of CER, Australia and New Zealand continue to draw closer together in a number of other ways:

  • Currency correlation: The Australian and the New Zealand dollars have each floated in international markets since the mid-1980s, with both included in the top-10 internationally traded currencies, and with the ‘kiwi’ historically trading at around a 30 percent discount to the ‘aussie’. Independent central banks in each country pursue similar fiscal management policies. The AUD/NZD cross has historically been one of the most closely correlated amongst the widely-traded forex pairs, both as between the currencies themselves and independently in other pairings as ‘commodity dollars’ – currencies sensitive to moves in international commodities pricing. From time to time, from one side of the Tasman or the other, there’s revival of the debate on formal currency union. Investors shouldn’t hold their breath on that one.

  • Labour markets: From early in their respective lives as independent states, Australia and New Zealand have allowed virtually unrestricted cross-border labour migration. A New Zealand passport entitles the holder to permanent residence in Australia and vice versa, a right not lost on the many immigrants to New Zealand who’ve moved across the Tasman on acquiring NZ citizenship. Labour migration is heavily weighted in Australia’s favour, with the estimated half-million NZ citizens currently resident in Australia equating with over 11 percent of New Zealand’s resident population but the 65,000 Aussies calling New Zealand home just 0.3 percent of Australia’s population.

  • Standard of living: Despite the disparity in GDP per capita – with Australia roughly thirty percent higher than New Zealand on a PPP (purchasing power parity) basis – the two countries are seen internationally as having a similarly high standard of living. Indeed, the Legatum Institute’s 2012 Prosperity Index ranks Australia and New Zealand 4th and 5th respectively out of the 142 countries surveyed.

  • Shared values: The two countries routinely score within a few positions of each other in a range of other surveys relating to personal and business freedoms. And behind the indices is the reality of highly aligned trans-Tasman views on a wide range of issues, and of shared values in relation to freedom of expression, religious and political beliefs, and social welfare. In these intangible ways, for the foreigner – an investor, say – being in the one country will largely feel like being in the other. But whereas New Zealand’s population, as noted above, is roughly 20 percent of Australia’s, its gross exports of $46 billion are only around 14 percent of Australia’s $313 billion. The principal explanation for that discrepancy lies in a sector in which Australia is a major world player, whereas in relative terms New Zealand hardly rates a mention – minerals.

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